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UNION CARBIDE CORP. v. MONTELL N.V.

July 2, 1998

UNION CARBIDE CORPORATION, individually and on behalf of and as the successor in interest of Seadrift Polypropylene Company, Plaintiff, against MONTELL N.V.; MONTELL POLYOLEFINS; MONTELL NORTH AMERICA INCORPORATED; MONTELL USA INCORPORATED; TECHNIPOL S.r.l.; MONTEDISON S.p.A.; MONTELL FINANCE USA, INC.; ROYAL DUTCH PETROLEUM COMPANY, p.l.c.; THE SHELL TRANSPORT AND TRADING COMPANY, p.l.c.; SHELL PETROLEUM N.V.; THE SHELL PETROLEUM COMPANY LIMITED; SHELL PETROLEUM INC.; SHELL OIL COMPANY; SHELL POLYPROPYLENE COMPANY; SHELL CANADA LIMITED; SHELL INTERNATIONAL CHEMICAL COMPANY LIMITED; and SHELL INTERNATIONALE RESEARCH MAATSCHAPPIJ B.V., Defendants.


The opinion of the court was delivered by: SCHEINDLIN

OPINION AND ORDER

 SHIRA A. SCHEINDLIN, U.S.D.J.:

 Plaintiff Union Carbide Corporation ("UCC") filed a Fourth Amended Complaint on September 24, 1996, asserting a variety of tort, contract and antitrust claims arising out of its business dealings with defendant Shell Oil Company ("SOC") in the 1980's and early 1990's. On May 27, 1998, defendants made seven separate motions seeking summary judgment on ten of UCC's claims. The majority of one of these motions -- SOC's motion for partial summary judgment on UCC's first, second and ninth claim for relief -- was decided at a hearing held on June 10, 1998. This opinion resolves the one issue left open at that hearing: Whether SOC is entitled to summary judgment on the portion of UCC's fraud claim that relates to the appraisal proceedings conducted by Morgan Stanley.

 I. Factual Summary1

 In 1983, UCC and SOC executed a contract which they refer to as the "Cooperative Undertaking Agreement" ("CUA"). See Defendant Shell Oil Company's Exhibits in Support of Motion for Partial Summary Judgment on UCC's Three TPF-Related Claims ("Shell TPF Exhibits"), Ex. 6. Pursuant to this agreement, the parties jointly became involved in the business of licensing polypropylene manufacturing technology. See Plaintiff Union Carbide Corporation's Response to Opposition to Defendant Shell Oil Company's Statement of Material Facts Not at Issue in Support of Motion for Partial Summary Judgment on UCC's "Three TPF-Related Claims" ("UCC's TPF 56.1") at P 2(a). *fn2" Part of this joint effort involved sales of certain catalysts by SOC to the parties' licensees which are necessary for the production of polypropylene. See id. at P 2(b). SOC agreed that in the interest of maximizing licensing revenues, its profits on these sales would be limited to cost plus a "reasonable" return on capital. See id. at P 4. The CUA also provided that SOC would sell catalyst to the parties' jointly-owned partnership for use at a demonstration polypropylene plant in Seadrift, Texas. See id. at PP 5-6. SOC agreed that its profits on these sales would be limited to cost plus a 12% return on capital. See id. at P 7.

 In 1990, SOC developed a "Mixed Solvent Recovery" ("MSR") process which enabled it to reduce the amount of toxic waste generated by its catalyst production, and therefore to lower its waste disposal costs. See id. at PP 10-11. In 1992, it began construction of a facility in Norco, Louisiana to take advantage of this new technology; this facility began operation in 1993. See id. at P 12(a).

 According to SOC, the MSR components of the Norco plant were run as a "separate business center," independent of the "SHAC II" process that comprised the remainder of the catalyst manufacturing business. See id. at P 15(a); Shell TPF Ex. 36 at 53-56, 60-64. According to UCC, however, MSR was an inseparable and integral part of the catalyst operation as a whole.

 In 1992, SOC became interested in a new venture with defendant Montedison. See UCC TPF 56.1 at P 17. Because this venture was incompatible with SOC's existing relationship with UCC, SOC began discussions with UCC regarding the termination of the CUA. See id.

 The Montedison negotiations -- which ultimately led to the formation of a company called Montell -- became the subject of antitrust proceedings before the Federal Trade Commission. See id. at P 18. In 1995, the FTC, Montedison, and SOC signed a Consent Order pursuant to which SOC agreed to divest itself of its existing polypropylene assets in order to facilitate the formation of Montell. See id. at P 20. As part of this agreement, SOC committed itself to the transfer of those assets to the Shell Polypropylene Company ("SPC"), and the subsequent sale of SPC. See id. at PP 21-22. The day the Consent Order was executed, UCC filed this lawsuit and moved for a preliminary injunction prohibiting the formation of Montell until the sale of SPC was completed. See id. at P 23. As a result of extensive settlement negotiations, UCC withdrew its motion when SOC agreed to sell SPC for 85% of its market value, as determined by an independent appraiser. See SOC TPF Exhibits, Ex. 9.

 Both sides then submitted their views on SPC's proper valuation to an independent, court-appointed appraiser, Morgan Stanley. See id. at P 40. To substantiate its argument that SPC should be given a relatively high valuation, SOC contended that (1) the MSR process was separate from the SHAC II operation; (2) a "reasonable" return for the purposes of the CUA would be at least 25% and possibly over 50%; (3) SOC, not UCC, had the right to license MSR technology under the CUA; and (4) the catalyst prices SOC had charged in 1995 were within the limits set by the CUA, and future price increases could be expected. See SOC TPF Exhibits, Ex. 39, 25. UCC expressed its contrary view on at least some of these issues to Morgan Stanley. See UCC TPF 56.1 at P 41.

 Morgan Stanley concluded that the fair market value of SPC was $ 275 million, based in part on its acceptance of SOC's arguments regarding the interpretation of the CUA. See id. at P 46. Shortly thereafter, UCC announced its intention to purchase SPC for $ 234 million ($ 275 million x 85%).

 II. Legal Standard

 A motion for summary judgment may be granted only if "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c); see also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-50, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986). The moving party has the initial burden of identifying evidence that demonstrates the absence of a genuine issue of material fact. See Celotex Corp. v. Catrett, 477 U.S. 317, 323, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986); Capital Imaging Associates, P.C. v. Mohawk Valley Medical Associates, Inc., 996 F.2d 537, 542 (2d Cir. 1993). Once this burden is met, the non-movant must produce evidence from which a rational jury could find in its favor. See R.B. ...


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